News in today might suggest that far from obsessing ourselves with the current plight of the US economy, our attention might be better directed rather nearer home. Reading off from the results of the latest Purchasing Managers Index survey which appears in todays Financial Times, the services sector is growing, but employemnt in it isn’t. Sound familiar? Now we’d better sit down and start examining the possible causes. Of course, it might be just a temporary blip (this is what they keep saying in the US, but it’s a blip that has been running some months now) and then again it might not be.
The eurozone’s dominant services sector expanded for the seventh month running in January but companies continued to shed staff, according to a leading survey of more than 2,000 companies.
The Reuters/NTC survey showed the purchasing managers’ index for the services sector rising to 57.3 from 56.6 in December. A reading above 50 shows the service sector is expanding.
But the survey, which is watched closely by the European Central Bank, showed that companies were still reluctant to hire staff despite their growing optimism about the economic outlook.
The business expectations component of the index rose to a 22 month high of 71.5 from 71.0 while new business edged up to 57.0 form 56.9. But staffing levels fell, with the employment index sliding to 48.7 from 49.6.
Robert Prior Wandesford of HSBC said the rise in the PMI would normally be consistent with 0.9 per cent quarter on quarter services sector growth but that did not fit with the weakness of consumer spending.
Economists noted that the survey suggested that the upturn in the eurozone’s services sector had so far been a jobless recovery and had therefore had little impact on consumer confidence.
Employment is expected to only slowly respond to the upswing because the European corporate sector was much later than its counterparts in the US and UK in adjusting to the downturn.
In addition the strong euro, which has risen 20 per cent against the dollar over the last year, has weakened companies’ pricing power and squeezed margins intensifying pressure onthemto cut costs by shedding jobs.
The rise in the PMI was led by France where businesses reported a big jump in optimism. But in Germany the gains were modest and in Italy, the euro-zone’s third biggest economy, growth slowed.